In a bid to propel the growth of electric vehicles (EV) in the country, the government has announced a slash in the applicable rate of the Goods and Services Tax (GST) on lithium ion (Li-ion) batteries.

At the 28th GST Council meeting held in the national capital on Friday, union minister Piyush Goyal announced that Li-ion batteries, which earlier attracted a GST rate of 28 percent, will now fall under the 18 percent bracket.

This reduction in GST rate can be a game-changer in facilitating the expansion of EVs across the country. It is important to note here that in the Budget 2018-19 announced by the government a few months ago, the tariff rate of customs duty for Lithium-ion batteries was increased from 10 to 20 percent. The effective rate of import duty on Lithium-ion batteries (other than Lithium-ion batteries for cellular mobile phones) however, remained unchanged at 10 percent.

Energy storage has many potential applications in India, including support for renewable integration, diesel optimization, electric vehicles and grid support services. In a recent interview with Mercom, Naveen Sharma, vice president of energy storage provider Exicom, had opined that our country needs to set up mid and large-scale, lithium-ion battery manufacturing capacity and reduce the cost of lithium-ion batteries used in such storage applications. “We should strive and become an export hub for lithium-ion battery production,” Sharma had said. With this GST Council announcement, this aim does not seem too far-fetched.

Recently, the Minister for Power, R.K. Singh, chaired a meeting with battery manufacturers in New Delhi to discuss the creation of an ecosystem for incentivizing battery manufacturing in India. Moreover, Vikram Sarabhai Space Centre (VSSC), a part of Indian Space Research Organisation (ISRO), has also invited applications regarding the Request for Qualification (RFQ) to transfer its in-house developed Li-ion cell technology. The renowned center for technological research and innovation intends to transfer its technology to competent Indian industries and start-ups so that they can establish Li-ion cell production facilities in the country.

If Li-ion battery manufacturing is developed and supported when the sector is in a relatively nascent stage and demand is low, it will prove to be beneficial for the industry in the long run. For an EV, the battery comprises a major share of the cost. If the batteries are indigenously produced, the costs are expected to dip, making EVs affordable to a larger population.

The GST Council has reduced the applicable GST rates on a few other goods which can help in building a more sustainable and green economy.

The government has reduced the GST on fuel cell vehicles from 28 percent to 12 percent. This is expected to attract more consumers to the intelligent and sustainable mode of transport for the betterment of the environment.

The GST on biofuel pellets has been reduced to 5 percent, which was earlier subject to various higher rates. This will give the much-needed boost to recently announced National Policy on Biofuels – 2018.

GST on ethanol has also been reduced from 18 to 5 percent in a bid to boost clean energy.